Mortgage is a completely uncharted territory for most of us. For some of the first timers, adequate knowledge of some of the terminologies used in mortgages too is absent. With such little knowledge of mortgage terms, can we expect the person to make a good decision on mortgages?

This article will give a brief overview of mortgages as they are in the UK. In this article we will deal with the meaning of mortgages, their types, advantages and disadvantages of mortgage, and the common traps.

Mortgage is a method of purchasing real estate in the UK. Real estate includes landed property, house, building etc. The borrower who is taking mortgage will be known as the mortgagor. The bank which lends against the real estate will be known as the mortgagee.

Banks lend a certain sum to the borrower for a specified period. Though the borrower agrees to repay the loan after the end of the specified period through a contract, he will have to guarantee repayment with collateral. Temporarily transferring ownership rights of house to loan provider constitutes collateral. The loan provider too agrees to return back the rights to house as soon as the mortgage is fully repaid. The transfer of ownership rights will not affect the right of borrowers to continue staying in home.

Mortgages have branched into a number of categories according to the needs which they fulfil and to the group which they serve. First time buyer mortgage, for instance, refers to the mortgage lent to borrowers buying home for first time. A unique feature of this mortgage is that the rate of interest is heavily discounted.

Buy to let mortgage is another important kind of mortgage. The advantage of this mortgage is that borrowers become a homeowner without making any payment from their side. All payments on account of monthly instalments are to be made through rent received.

Council right to mortgage forms another important category of loans. This mortgage is particularly for the people who have been living as council tenants and have received the offer to buy their council homes.

Similarly mortgage has been classified according to the method utilised for payment. If a mortgage does not utilise the regular method of repayment and requires only interest payments during the term of the loan, it is called an interest only mortgage. The remaining balance needs to be paid at the end of the term of loan. Interest only mortgage can further be divided into pension mortgage and endowment mortgage.

Mortgages result into several advantages. Some of these have been included here.

  • Because of mortgages, people can own house even when they have limited funds.
  • Mortgages do not have to be repaid at once. If agreed, borrowers can make payments in small instalments over a certain period.
  • Mortgage allows borrowers to build a good credit history. Each instalment that is made goes towards adding a positive entry in their credit file.

Mortgage can have certain disadvantages as well. They are as follows:

  • When people find that they can draw sums so easily, they get into the habit of drawing larger mortgages. This can be harmful for the finances of these people.
  • When mortgage is not paid, the lender will undertake repossession proceedings against borrower. The borrower can thus lose his home for ever.

Speaking of the traps in mortgage, there are many. Most of them have been laid down by the lenders against uninformed borrowers. The most common of these is the increased rate of interest. Borrowers are not aware of the present interest rate and the loan provider will raise the interest rate on the excuse that borrower is more risky. To escape this trap, borrowers need to be well researched on the interest rates.

Another common trap is including a lot many fees and charges in the mortgage balance. Lenders have the fees and charges written in fine print in their terms and conditions. Certain charges are included without notice too. One can escape unreasonable rates by reading attentively the fine print and questioning each and every charge for its validity.

Mortgage is a significant decision against home. One wrong step and you can find yourselves on road. Doesn’t that command of you to be rational in your decisions on mortgage? The UK mortgage guide will go a long step in providing the necessary fuel for rational decisions.

Summary

Decisions taken without much information are sure to backfire. The intention of this article is to guide borrowers on the several aspects of mortgages. The meaning of mortgage, its types, advantages and disadvantages, and the common traps involved in mortgages has been dealt with in this article.

Andrew baker has done his masters in finance from CPIT. He is engaged

in providing free, professional, and independent advice to the residents

of the UK.He works for the personal loan web site http://www.ukfinanceworld.co.uk

for any type of uk secured loans and unsecured loan please visit

http://ukfinanceworld.co.uk